In-Game Coins

In-Game Coins
IN-GAME COINS
14.03.2019
COMPARING FINANCIAL DATA OF NBA 2K AND EA’S ULTIMATE TEAM TO CRYPTOCURRENCIES
CHRISTIAN OTT
AUTHOR
Introduction
Utility tokens are a fairly new and innovative asset class. In difference to stocks, where the value highly depends on the performance of the company invested in, the utility token gains value depending on its usage. Whether it is just used as the fuel of a platform or has several use cases across different platforms and products, the price should highly correlate with its number of users. However, in the past we have mostly seen the downside of the utility token in the cryptocurrency market, with major price declines due to no usage and no adoption. With not many successful utility tokens in the market, it is difficult to estimate the potential market cap of utility tokens with adoption. However, outside of the cryptocurrency market, the gaming industry has successfully integrated virtual currencies into their products in recent years, giving us a glimpse of how successful utility tokens could be. In this article, I will take a look at two successful in-game currencies to see, how their financial data ranks among other cryptocurrencies.

Virtual Currencies in Games
Virtual currencies in games are a relatively new mechanism and have been introduced as part of the “Freemium” model. Freemium is a business model where users can play the basic features of a game for free but advanced features or the purchase of in-game items requires payments. After some Freemium titles revealed the potential revenue generated with virtual currencies, major video game publishers also started to integrate virtual currencies into their products. While in some games purchasable items can just be used to change the appearance of an avatar, in-game currencies have seen tremendous interest in games, where the purchasable items can give a gamer a competitive edge over other gamers. This is especially the case in sports games, where gamers can buy better players for their team with the help of virtual currencies.

NBA 2K
One of these sports games with a purchasable in-game currency is the NBA 2K series. Video game publisher Take-Two has introduced virtual currencies in NBA 2K13 and they have seen tremendous interest ever since. While Take-Two already called the sales of virtual currencies in NBA 2K13 “high-margin revenue”, sales of virtual currencies in the NBA 2K series grew by an incredible rate of 150% in both 2014 and 2015 and by about 70% in both 2016 and 2017. Growth in 2018 has slowed down a bit but is still at a high-flying 34%.

Unfortunately, Take-Two doesn’t disclose the total revenue generated with virtual currency sales in NBA 2K publicly, however, they have named the increases in revenue generated by the NBA 2K series in fiscal year 2017 (265.8 million USD) and 2018 (159.4 million USD). Valuing these numbers against the increases in copies sold and the percentage increase of revenue with virtual currencies enables us to estimate the increase in revenue with virtual currencies in NBA 2K for the fiscal years 2013 to 2018, which can be seen in the following graphic. Don’t take these numbers as an exact value (it is just an estimation) but they should be good enough to give us a hint of how much revenue Take-Two is generating with virtual currency sales in the NBA 2K series.1-11
NBA 2K VC(IN USD – ESTIMATED)T2'S YEARLY NET REVENUE FROM00.1B0.2B0.3B0.4B0.5B201820172015201620142013
EA’s Ultimate Team Mode
Aside from the NBA 2K series, the sports gaming sector is dominated by EA with yearly releases in the FIFA series, Madden NFL series, NHL series and NBA Live series. All of these games have an integrated “Ultimate Team” mode, where gamers can collect players and build a team to compete against each other online. Players can be obtained with coins or points, whereby coins can be gained with in-game success and points can be bought with fiat money. Points enable gamers to buy item packs with different players included in them, which might be better than the players already included in the gamers’ team but might also be a lot worse.

These in-game buys with fiat money are an extremely successful revenue source for Electronic Arts and accounted for 21 percent of EA’s net revenue in fiscal year 2018, which roughly equals 1.1 billion USD. In-game purchases in Ultimate Team are growing at a tremendous rate – in fiscal year 2017 its net revenue was at around 775 million, while it was at around 660 million in fiscal year 2016. Unfortunately, EA doesn’t disclose percentages or totals of their Ultimate Team revenue per game, so we just have to regard it as a total per all Ultimate Team modes.12-15
ULTIMATE TEAM(IN USD)EA'S YEARLY NET REVENUE FROM00.2B0.4B0.6B0.8B1.0B1.2B2018201720162015
Rank among other Cryptos
So, how would these in-game currencies rank among other cryptocurrencies regarding financial data? They are different from most cryptocurrencies, since those mainly have a fixed supply and an increase in demand results in an increase in price. However, an increase in demand for these in-game currencies just leads to an increase in tokens sold, NBA 2K’s VC or EA’s Ultimate Team points don’t have a max supply and therefore stay at the same fixed price (unless they issue a discount). It makes them easier to compare to ICOs than to the market cap of cryptocurrencies, because with ICOs we usually look at amount of money raised (which is the actual amount of money put into this ICO) while the market cap just multiplies the current price of a cryptocurrency with its circulating supply (e.g. 10 million invested in a coin might result in a 100 million increase in market cap).

Rank among other Cryptos – ICOs
Positioning these two in-game currencies in a ranking of money raised by ICOs shows their huge success. EA’s net revenue with the sale of virtual currencies in their Ultimate Team mode from fiscal year 2015 to 2018 is at around 3.1 billion USD and might even surpass 4 billion once fiscal year 2019 is completed on March 31, 2019. The estimated net revenue generated by Take-Two with the sale of virtual currencies in the NBA 2K series from fiscal year 2013 – 2018 is at around 1.2 billion USD. There are only two ICOs that raised comparable numbers with the EOS ICO (4 billion USD raised) and the Telegram ICO (1.7 billion USD raised). Adding to that, these ICOs are huge outliers concerning amount of money raised, no other ICO has raised even close to a billion U.S. Dollars and only a small number out of thousands of ICOs has raised over 100 million USD.16
RANKINGIN-GAME CURRENCIES AND ICOSESTIMATED NET REVENUE FROM FISCAL YEAR 2013 – 20181.2 BILLION USDNBA 2K VCAMOUNT OF MONEY RAISED IN THEIR ICO1.7 BILLION USDTELEGRAMNET REVENUE FROM FISCAL YEAR 2015 – 20183.1 BILLION USDEA'S ULTIMATE TEAMAMOUNT OF MONEY RAISED IN THEIR ICO4.1 BILLION USDEOS
Rank among other Cryptos – Market Cap
This net revenue generated in both sports game series by sales of their respective virtual currencies could be viewed as their market cap in the current form the tokens are sold. Every sold token moves from the infinite total supply to the circulating supply with every token having a fixed price. Ranking these market caps in CoinMarketCap’s top 100 ranking places both in-game currencies among the top cryptocurrencies. With a market cap of 3.1 billion USD, EA’s Ultimate Team is ranked below EOS and above Bitcoin Cash on place 6. NBA 2K’s VC would be placed on position 13 with a market cap of 1.2 billion USD below Cardano and above Bitcoin SV.
RANKINGVC, UT AND COINS – MARKET CAPMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)0.9 BILLION USDMONEROMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)1.2 BILLION USDBITCOIN SVESTIMATED NET REVENUE FROM FISCAL YEAR 2013 – 20181.2 BILLION USDNBA 2K VCMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)1.2 BILLION USDCARDANOMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)1.5 BILLION USDTRONMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)2.0 BILLION USDSTELLARMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)2.0 BILLION USDTETHERMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)2.1 BILLION USDBINANCE COINMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)2.3 BILLION USDBITCOIN CASHNET REVENUE FROM FISCAL YEAR 2015 – 20183.1 BILLION USDEA'S ULTIMATE TEAMMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)3.3 BILLION USDEOSMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)3.5 BILLION USDLITECOINMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)12.9 BILLION USDXRPMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)14.1 BILLION USDETHEREUMMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)68.8 BILLION USDBITCOIN
Market Cap vs. Money invested
Nonetheless, with the market cap just being an indicator of how much an investor would pay for a purchase of the total supply at the current price, it does not represent how much money went into or out of a particular asset. For example, with just a 24-hour volume of 26.4 billion USD, the overall market cap of cryptocurrencies listed on CoinMarketCap fell from 395 billion USD to 330 billion USD on February 6, 2018, which is a market cap decline of 2.64 times the volume the coins were traded at. So, the question is how much does the market cap of a cryptocurrency increase, if it has a fixed circulating supply and a certain amount of money is invested in it?

According to an estimation by Thomas Lee, the overall cryptocurrency market cap increases by 25 billion, every time 1 billion USD goes into the crypto market.17 That estimation might have its origin in the bull market and honestly, I think 25 times as a figure is quite high but I generally agree that a billion invested in the crypto market leads to a multi-billion increase in market cap, due to thin orderbooks and a lack of liquidity for large buy orders as we have seen in 2017. Vice versa, a billion cashed out of the market leads to a multi-billion decrease in market cap, which we witnessed in 2018. Let’s go with a more conservative approach than Thomas Lee and say, that the cryptocurrency market cap increases by 5-10 billion for every billion invested in it. The following graphic shows the hypothetical market cap of the two in-game currencies under the consideration of a multi-billion dollar market cap increase for every billion invested in the asset:
RANKINGHYPOTHETICAL MARKET CAPHYPOTHETICAL MARKET CAP = 25x NET REVENUEHYPOTHETICAL MARKET CAP = 10x NET REVENUEHYPOTHETICAL MARKET CAP = 5x NET REVENUENET REVENUE FROM FISCAL YEAR 2015 – 201877.5 BILLION USD31.0 BILLION USD15.5 BILLION USD3.1 BILLION USDEA'S ULTIMATE TEAMHYPOTHETICAL MARKET CAP = 25x NET REVENUEHYPOTHETICAL MARKET CAP = 10x NET REVENUEHYPOTHETICAL MARKET CAP = 5x NET REVENUEESTIMATED NET REVENUE FROM FISCAL YEAR 2013 – 201830.5 BILLION USD12.2 BILLION USD6.1 BILLION USD1.2 BILLION USDNBA 2K VCMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)12.9 BILLION USDXRPMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)14.1 BILLION USDETHEREUMMARKET CAP ON 12.03.2019 (ACCORDING TO CMC)68.8 BILLION USDBITCOIN
Conclusion
Due to the fixed price of Ultimate Team points or the VC sold in the NBA 2K series, we know how much money was invested in these during the last couple of years. Take-Two had an estimated net revenue from selling virtual currencies in the NBA 2K series of around 1.2 billion USD in the last 6 years, with an estimated 470 million from fiscal year 2018 alone. However, they did all that with just 9 million copies sold of NBA 2K18 in fiscal year 2018. While this is certainly a high number for a sports game, think about the potential we are talking here.

Let’s say an application can create the same demand than the NBA 2K series for their virtual currency but has 90 million users instead of 9 million users. Then we are not talking about 470 million USD put into the token in one year but rather 4.7 billion USD. Connecting that to the fact that one billion USD invested leads to a multi-billion USD increase in market cap, shows us the potential of a very successful utility token. Let’s say it leads to 5 times the market cap, then we are looking at a 23.5 billion USD market cap for that 90 million user application, which is currently around 2x the market cap of Ethereum or XRP. Let’s say it leads to 10 times the market cap (47 billion USD) or Tom Lee’s suggested 25 times increase, then we are looking at a 117.5 billion USD market cap for the application, which is around 50 billion higher than Bitcoin’s current market cap and underlines the huge potential of highly demanded utility tokens.

Wrap-up
While utility tokens are an innovative new financial asset, the cryptocurrency market has seen its majority of utility tokens stay without many use cases or users, resulting in heavy price declines of these tokens. On the contrary, the gaming sector has successfully integrated virtual currencies into video games. Especially the sports gaming sector has created a huge demand for their tokens by providing gamers with better players in exchange for purchasable in-game currencies. The NBA 2K series or EA’s Ultimate Team mode are perfect examples for this success with the generation of multiple billion USD in net revenue by selling their virtual currencies. If a cryptocurrency reaches a comparable or even higher demand than these games, it would certainly be placed among the top cryptocurrencies and could reach a market cap higher than Ethereum’s or XRP’s current market cap, with even a chance to surpass Bitcoin’s current market cap.

Sources
1
A big thank you to “Thinking Gamers”, who made a terrific job of collecting information about the numbers behind virtual currency in NBA2K and gave me a ton of input for the NBA 2K section of this article.
Thinking Gamers; Medium; Financial Slam Dunk: The Numbers Behind Virtual Currency in NBA2K; 18.10.2017
2
“Delivered the top-ranked and top-selling basketball video game for the 11th year in a row with the release of NBA 2K12. The title received the highest Metacritic score in the history of 2K Sports and, for the second consecutive year, sold-in over 5 million units and led 2K Sports to achieve profitability.”
Take-Two Interactive Software, inc.; Official Website; Annual Report 2012; 2012
3
“Delivered the top-ranked and top-selling basketball video game for the 12th year in a row with NBA 2K13. The title won more than 38 editorial honors and quickly became the most profitable sports release in the history of 2K. This was the third consecutive release of our annual basketball series to sell-in over 5 million units.”
Take-Two Interactive Software, inc.; Official Website; Annual Report 2013; 2013
4
“In addition to DLC, we are also now receiving high-margin revenue from in-game purchases of virtual goods, both in front-line titles such as NBA 2K13, and in mobile and online titles, many of which are free-to-play.”
Take-Two Interactive Software, inc.; Official Website; Annual Report 2013; 2013
5
“Delivered the highest-rated and top-selling basketball video game for the 13th consecutive year with NBA 2K14. The title was our first for next-gen and has surpassed NBA 2K13 as our highest-selling sports release, with sell-in of more than 6.5 million units to date. The success of NBA 2K14 was enhanced by strong demand for the game’s virtual currency, sales of which increased 150% versus NBA 2K13.”
Take-Two Interactive Software, inc.; Official Website; Annual Report 2014; 2014
6
“Once again delivered the highest-rated and top-selling basketball video game with NBA 2K15. The title has sold-in over 7 million units to date, and overall revenue is up substantially versus the comparable period for NBA 2K14, driven by both higher sales and growth in recurrent consumer spending. During fiscal 2015, virtual currency sales grew 150% year-over-year, benefitting from increased online gameplay for NBA 2K15 and significant engagement with the MYNBA 2K15 companion app.”
Take-Two Interactive Software, inc.; Official Website; Annual Report 2015; 2015
7
“We released NBA 2K16, which remains the highest-rated and top-selling NBA simulation. The title outperformed our expectations and is poised to become our highest-selling sports game ever, with sell-in to date of nearly 7.5 million units – up double-digits versus the same period for the prior release. NBA 2K has benefited from strong player engagement, and sales of the game’s virtual currency were the largest contributor to recurrent consumer spending after Grand Theft Auto Online. During fiscal 2016, recurrent consumer spending on NBA 2K grew 64% year-over-year, driven both by online play and the MyNBA2K companion app.”
Take-Two Interactive Software, inc.; Official Website; Annual Report 2016; 2016
8
“We released NBA 2K17, which remains the highest-rated sports game of the current console generation, and is poised to become our highest-selling sports title ever with sell-in to date of nearly 8 million units. Engagement with and recurrent consumer spending on our industry-leading basketball series continues to grow, with over 2 billion games of NBA 2K17 played on PlayStation 4 and Xbox One, up 16% over NBA 2K16. More than 1.3 billion of these games were multiplayer – a 40% increase. In addition, the average time that consumers spent playing multiplayer games increased by nearly 30%. This remarkably strong engagement helped to drive record Bookings from recurrent consumer spending on NBA 2K, which grew 71% during fiscal 2017.”
Take-Two Interactive Software, inc.; Official Website; Annual Report 2017; 2017
9
“For the fiscal year ended March 31, 2017, net revenue increased by $366.1 million, as compared to the prior year. This increase was due primarily to (1) an increase of $265.8 million in revenues from our NBA 2K franchise;”
Take-Two Interactive Software, inc.; Official Website; Annual Report 2017; 2017
10
“We released NBA 2K18, which is now our highest-selling sports title ever with sell-in to date of over 9 million units – up 17% over last year’s release. In addition, our NBA 2K series continues to benefit from growing engagement and recurrent consumer spending. During fiscal 2018, average revenue per user, revenue per hour and unique multiplayer users all increased double-digits, and recurrent consumer spending on NBA 2K grew 34% to a new record.”
Take-Two Interactive Software, inc.; Official Website; Annual Report 2018; 2018
11
“For the fiscal year ended March 31, 2018, net revenue increased by $13.1 million, as compared to the prior year. This increase was due primarily to an increase of $159.4 million in revenues from our NBA 2K franchise,”
Take-Two Interactive Software, inc.; Official Website; Annual Report 2018; 2018
12
“Our most popular live service is the Ultimate Team mode associated with our sports franchises. Ultimate Team allows players to collect and trade current and former professional players in order to build, and compete as, a personalized team. Net revenue from Ultimate Team represented approximately 21 percent, 16 percent and 15 percent of our total net revenue during fiscal year 2018, 2017 and 2016, respectively, a substantial portion of which was derived from FIFA Ultimate Team.”
Electronic Arts Inc.; Fiscal Year 2018 – Annual Report; Our Games and Services; 2018
13
“In fiscal year 2015, net revenue from our Ultimate Team services, Battlefield 4 and FIFA 15 represented approximately 13 percent, 11 percent and 11 percent, respectively, of our total net revenue.”
Electronic Arts Inc.; Fiscal Year 2017 – Annual Report; Our Games and Services; 2018
14
“Our largest and most popular game is FIFA, the annualized version of which is consistently one of the best-selling games in the marketplace. Net revenue from FIFA 18, FIFA 17, and FIFA 16 represented approximately 11 percent of our total net revenue in fiscal years 2018, 2017, and 2016, respectively.”
Electronic Arts Inc.; Fiscal Year 2018 – Annual Report; Our Games and Services; 2018
15
“Electronic Arts Inc. and Subsidiaries – Year Ended March 31 – Net revenue: 5.15 billion in Fiscal Year 2018, 4.845 billion in Fiscal Year 2017, 4,396 billion in Fiscal Year 2016, 4,515 billion in Fiscal Year 2015, 3,575 billion in Fiscal Year 2014,”
Electronic Arts Inc.; Fiscal Year 2018 – Annual Report; Selected Five-Year Consolidated Financial Data; 2018
16
“EOS – Funds raised: $4.2b; Telegram – Funds raised: $1.7b; Petro – Funds raised: $735m; TaTaTu – Funds raised: $575m; Dragon – Funds raised: $420m; Hdac – Funds raised: $258m; Filecoin – Funds raised: $257m; Tezos – Funds raised: $232m; Paragon – Funds raised: $183m; Sirin Labs – Funds raised: $158m”
Bloomberg; Official Website; How’s That ICO Working Out?; 14.12.2018
17
“For every billion Dollars, that goes into crypto, it is turning into roughly 25 billion dollars of price appreciation. If Millenials put 10 percent of their savings flow – a 100 billion – into crypto, that’s a 2.5 trillion dollar rise per year and crypto is roughly a 500 trillion dollar market cap.”
Thomas Lee; YouTube; Thomas Lee Presents The Economics of Cryptocurrencies | Upfront Summit 2018; 21.02.2018